Nike beats forecast for earnings with $484 million

As the recession socks sportswear companies, Nike continues to outperform most competitors in its latest financial report -- while showing signs that it, too, feels the pinch of reluctant consumers.

Excluding a one-time expense, net income increased 4 percent to $484.5 million during the third quarter of the company's financial year. Earnings per share increased 8 percent to 99 cents, beating analysts' forecast.

Revenue decreased 2 percent to $4.4 billion, but would have increased 2 percent if currency exchange rates had stayed the same.

U.S. revenue growth helped offset a 14 percent decline in Nike's European region, which was hurt by deteriorating consumer confidence and a strengthening U.S. dollar. Orders for the next five months are down 2 percent worldwide, taking into account changing currency rates.

And about that one-time expense: A year after acquiring British soccer outfitter Umbro, Nike wrote down its value by $240.7 million -- more than 40 percent of the purchase price. Including that transaction, the company's net income fell 47 percent in the quarter that ended Feb. 28.

"There are some cracks here and there in the business, but not as bad as others," said Christopher Svezia, an analyst with Susquehanna Financial Group. "Nike is managing much better than most."

During a conference call with analysts on Wednesday, Nike executives emphasized the Beaverton-area company's commitment to innovation and strategic cost-cutting.

New technology and design developed for the 2008 Summer Olympics in Beijing is spreading to other Nike products, said CEO Mark Parker and brand president Charlie Denson. Basketball and running gear are doing especially well in this economic climate, Denson said.

During the past several months, Nike has cut travel, meeting and marketing costs. The company will consolidate manufacturing operations in the coming months.

And this spring, Nike leaders expect to lay off as much as 4 percent of their 35,000-person work force.

They said Wednesday they'll eliminate extra layers of management, making the company more nimble and moving new products to market more quickly.

"We're still a growth company, and we're positioning ourselves to be more competitive than ever," Denson said.

Nike executives attributed the Umbro write-off to poor market conditions in Great Britain, where the subsidiary is based, and their decision to scale back investment in the brand. But they plan to continue developing Umbro, which will debut new gear for the British national soccer team this month.

"Umbro is going to require more work and time to optimize its potential," Parker said.

Nike may have paid too much for Umbro, Svezia said, but market conditions have crumbled in the past year, too. "Bottom line is, from the get-go, it was a challenging acquisition."